In the Union Budget 2025 presented on February 1, Finance Minister Nirmala Sitharaman announced significant income tax reforms aimed at providing relief to the middle class and stimulating economic growth. A key highlight is the increase in the tax exemption threshold, ensuring that individuals earning up to ₹12 lakh annually will not be liable to pay income tax. This move is expected to exempt approximately 10 million taxpayers from income tax, thereby increasing disposable income and boosting consumer spending.
Tax Exemption Limit: The exemption limit has been raised from ₹7 lakh to ₹12 lakh under the new tax regime introduced in 2020. This change aims to simplify the tax system and encourage more individuals to adopt the new regime.
Tax Bracket Adjustments: The highest tax rate of 30% will now apply to incomes above ₹24 lakh, up from the previous threshold of ₹15 lakh. Taxpayers with incomes up to ₹12 lakh will save approximately ₹80,000 annually due to these adjustments.
Economic Implications:
The government anticipates that these tax reforms will enhance disposable incomes, thereby increasing consumption, savings, and investments in the economy. However, it is estimated that the government will forgo about ₹1 trillion in revenue each year due to these changes. Despite this, the government predicts that 75% of taxpayers will file under the new tax system in 2024-25, reflecting confidence in the reforms' ability to stimulate economic activity.
Additional Budget Highlights:
Agriculture: A high-yield crop program targeting 17 million farmers has been launched to boost agricultural productivity.
Gig Economy: Initiatives to formalize gig economy workers are set to improve their access to healthcare and welfare programs.
Infrastructure and Energy: Significant investments are planned for startups, innovation, tourism, infrastructure development, and the energy sector, including a notable Nuclear Energy Mission aiming for 100 GW of nuclear power by 2047.
These comprehensive measures reflect the government's commitment to fostering inclusive development and stimulating private investment to drive growth. The focus on tax relief for the middle class is expected to play a pivotal role in revitalizing the economy by enhancing consumer spending power.
